I’m a college student with an idea for a startup. My partners and I are now at a point where we need to raise some capital. We’ve exhausted our network of friends and family, and we’ve also poured our own savings into the business. But we still have a way to go before we reach our funding goal.
How can college students get the funding they need for their startup?
Friends, family and personal savings are a major source of startup funding for students, but there are other ways to get the funds you need to launch your idea.
If you want to avoid loans, consider angel investors. Angel investors fund startups in exchange for a stake in the business. They also serve as mentors, and can help guide businesses as they grow. There are many ways to find angel investors, from attending entrepreneur conventions to joining online communities designed to link entrepreneurs with investors.
Crowdfunding is another way to raise funds, and it’s becoming an increasingly popular way to raise much-needed capital. With crowdfunding, money is raised through donations from individuals. In exchange for donations, startups can offer rewards or perks. Sites like Kickstarter and Indiegogo can help you get started.
Your school may also be a resource for funding. In addition to loans for academic purposes, schools often offer grants and loans for businesses. Some schools hold competitions for the best business models. Check with your counselor or contact someone at the school to see if they offer anything like this.
Government and government-backed loans are also available to startups. These loans may be a good option for you if you’re unable to get all of the funding you need from grants or investors. Government loans often have favorable terms. The U.S. Small Business Administration links entrepreneurs with lenders, and may even back as much as 90% of the loan.
A bank loan is another option, but it will be harder to secure funding through this route. Banks want strong evidence that you’ll be able to repay the loan. This means having a solid business plan and a good credit score. Interest rates will also be higher with this type of loan.
Venture capitalists, also known as VCs, can also help you secure funds for your startup. Similar to angel investors, VC firms will invest in startups in exchange for an equity share.
VC firms can help you get the funds you need, but you need to be prepared to give up a portion of your business. That may not necessarily be a bad thing. If the firm has a stake in your business, they will be more inclined to provide mentoring and resources to ensure the company is a success.
Just keep in mind the VCs want their money back – with interest – as soon as possible. They won’t wait decades to see a return on in their investment. Whether or not you receive VC funding will depend on your industry. Most VC firms are drawn to startups in the tech or software industries.